Wal-Mart blasts Puerto Rico tax ahead of trial

SAN JUAN Feb 1 (Reuters) - Wal-Mart's Puerto Rico
subsidiary on Monday said a U.S. commonwealth tax on big
companies is discriminatory, setting the stage for a trial
starting on Tuesday that could threaten a tax increase Puerto
Rico hoped would protect local businesses and jump-start its
economy.

In court papers filed ahead of the trial, in U.S. District
Court in San Juan, Wal-Mart said "it is the only taxpayer" on
the island subject to a tax hike enforced on goods purchased by
big companies from corporate affiliates outside of Puerto Rico.

"Wal-Mart PR was itself specifically targeted for
discrimination," the company said, claiming it was taxed at 114
percent of net taxable income.

Wal-Mart sued Puerto Rico Treasury Secretary Juan
Zaragoza-Gomez in December, alleging the increase, which was
signed into law on May 29 last year, violated the commerce
clause of the U.S. constitution by unfairly taxing interstate
commerce.

The law increased the tax for on-island companies with more
than $2.75 billion in revenues that buy goods from off-island
"related parties" to 6.5 percent from 2 percent.

Wal-Mart says it is the only company that fits into the new
tax's highest bracket, effectively taxed on items from its own
distribution centers, but not those bought from Puerto Rican
vendors.

In separate court papers on Monday, Zaragoza-Gomez said the
tax is designed to protect against "'leakage' of income outside
of the Commonwealth's taxing jurisdiction." He argued that the
case does not belong in federal court to begin with, saying tax
disputes are meant to be adjudicated at the state level.

Puerto Rico is in economic crisis, facing $70 billion in
debt, a 45 percent poverty rate and a shrinking population as
residents leave for the mainland United States. The island is
trying to sway bondholders on steep cuts to repayments, but
faces resistance from creditors who feel it has not been
transparent about its finances.
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